Crowdfunding regulation in Australia
Posted 17 Mar 16 by Allan Farrar
In December 2015, the Minister for Small Business and the Assistant Treasurer, Kelly O’Dwyer, introduced into Federal Parliament legislation covering the government’s proposed crowd-sourced equity funding framework.
The legislation is designed to provide for online fundraising from individuals whereby they make financial contributions to a company’s business activities in return for an equity stake in the company.
The framework seeks to bring Australia into line with similar legislation in the United Kingdom and New Zealand and enable innovative companies to obtain funding for their technology and ideas in a way that was not previously possible.
The legislation seeks to protect retail investors whilst also facilitating the funding of these innovative companies
Companies seeking to take advantage of this legislation will need to be a category of unlisted public company which under the proposed legislation will need to have the principal place of business and a majority of directors resident in Australia, have assets and turnover of less than $5million, undertake no more than $5million in fund raising in any twelve months and cap individual retail investor subscriptions at $10,000.
These crowd sourced funding public companies will need to adopt constitutions which satisfy the provisions of the legislation and in order to remain eligible will need to remain below the asset and turnover threshold of $5million and make their crowd funding offer within twelve months of establishing itself as an eligible company.
Clearly a $5 million fund raising would result in the company exceeding the assets test so just how the legislation will deal with the $5million valuation issue is yet to be resolved in the interpretation of the legislation.
It is currently proposed that crowd sourced equity funding companies will:
- have no shareholder limits;
- be eligible to make public offerings;
- be required to make limited disclosure about the offer and provide general information regarding investor rights and investment risks;
- not be required to hold annual general meetings of shareholders;
- only provide an annual report on its website; and
- only require an audit if their crowd fundraising exceeds $1million.
As the legislation has not been passed the by Federal Parliament and is the subject of some strong criticism from industry, we will have to await the final outcome of the government debate before it can be determined whether the legislation provides an effective solution to the very clear need existing in the market or whether it just creates a greater regulatory burden.